dsbatten on Nostr: Did you know that MiCA successfully wrote a statistical fallacy into law last year? ...

Did you know that MiCA successfully wrote a statistical fallacy into law last year?

(Commission Delegated Regulation (EU) 2025/422 of 17 December 2024 Adopted under Arts. 6(12), 19(11), 51(15) and 66(6); which came into force 20 April 2025. It came out of ESMA's Final Report of 3 July 2024 (ESMA75-453128700-1229), Annex IV.

Once the consensus mechanism exceeds 500,000 kWh/year (something any Bitcoin mining operation with more than 20 new mining rigs will), annex table S.11 requires that "Energy intensity" also be measured, defining energy intensity as: "average amount of energy used, in kWh, per validated transaction"

Here's the problem.

There is a structural absurdity in this metric, because Bitcoin's energy consumption does not come from its transactions, it comes from mining Bitcoin.

Knowing this is akin to believing a tree's mass comes from the soil rather than from the air in biology - it's something a layperson might mistakenly assume, but anyone with a base level understanding of biology will know to be true.

That Bitcoin's energy consumption does not come from its transactions has also been shown four times in peer reviewed literature (Masanet et al., 2019; Dittmar et al., 2019; Sedlmeir et al., 2020; and Sai and Vraken, 2023)

Attempt to create a ratio of of two uncorrelated variables is not just inappropriate and misleading, it is a mathematical fallacy there is even a name for. It's called the "fallacy of the ratio standard" (Tanner, J. M. (1949)

The emissions-per-transaction ratio is a model example of this fallacy, because it is a ratio where the numerator doesn't respond to the denominator (it's arithmetic performed on two unrelated quantities).

To give a couple of real world examples of what goes wrong when we create an arbitrary ratio out of two unrelated things.

1. Measuring a fire station's emissions per fire attended.

A quiet year with few fires makes it look wildly carbon-intensive per fire. Better fire prevention makes the number worse. Nobody would accept "this station must be decarbonised, it only attended 11 fires."


2. Measuring a lighthouse's emissions per ship guided

A lighthouse uses electricity (and therefore creates emissions) identically whether one vessel passes or a hundred, because it exists to be available, not to process throughput. This metric would suggest you could "decarbonise" lighthouses by lobbying for more shipping, which improves the ratio.

3. A floodlit stadium's emissions per goal scored.

The lights draw the same for a goalless draw as for a seven-goal game, so a 0-0 gives you infinite emissions per goal. Under this 3rd example of the spurious metric at play, the way to improve football's carbon footprint is to score more.


The need to avoid the fallacy of the ratio standard is even taught in the first weeks of any public health or intro-stats course. The UK Public Health Textbook even puts it almost word for word:

"Any denominators used should be reflective of the population who could have been included in the numerator had they developed the condition of interest."

Applied to MiCA: for transactions to be a legitimate denominator, a transaction would have to be a thing that can emit CO₂ . It can't. Emissions come from mining. Transactions are not "at risk" of emitting, so they aren't a population at risk, so the quantity isn't a rate and the metric is spurious.

And yet, MiCA use it and measure it.

Truth is stranger than fiction.